The impacts of economic policy uncertainties on carbon dioxide emissions of emerging and low-income developing countries: the moderating role of institutional quality

Purpose This study is aimed to examine the effects of the economic policy uncertainty (EPU) on carbon dioxide (CO2) emissions. It further aimed to investigate the moderating role of institutional quality on the impacts of EPU on CO2 emissions. Design/methodology/approach The authors apply the two-step system-generalized method of moments (GMM) for 112 emerging economies and low-income developing countries (hereafter, developing countries) for the period 2000–2019. Findings The findings reveal that the effects of EPU on CO2 emissions are positive. Specifically, a percent increase in EPU results in a 0.047% increase in CO2 emissions in developing countries. However, the effects of institutional quality on CO2 emissions are negative, certifying that strong institutional quality reduces emissions. Also, the results confirm that the positive effect of EPU on CO2 emissions is weaker in countries with relatively strong institutional quality. Practical implications Policymakers should be more vigilant while designing and implementing economic policies. Also, the government should support firms investing in environment-friendly innovations during high EPU. Besides, developing countries should improve institutional quality to mitigate the effect of EPU on CO2 emissions. Originality/value This study is the first in its kind to examine the impacts of EPU on CO2 emissions in developing countries. It also provides a different viewpoint on the EPU–CO2 relationship and reinterprets it through the moderating role of institutional quality.